The problem with food stamps is that people need more than food

Prepaid cards have their use, but prescribing what they can buy is folly – what use is food when your boiler has broken down?

'Those who can’t afford groceries are already being referred to the … networks of food banks across the UK. The local social fund replacement schemes seem only to be duplicating this process.' Photograph: Martin Godwin for the Guardian

Thursday 28 March 2013 10.59 EDT
First published on Thursday 28 March 2013 10.59 EDT

This week, the Guardian exposed a worrying development in the localisation of the discretionary payments of the social fund. On reviewing several local schemes to replace this soon-to-be scrapped national system, it found that many were opting for food stamp-style payments, which can only be used to buy food.

There are several issues to raise here. The first is that, in expressing concern about this, I don't think anyone would suggest that local authorities ought not to carefully account for this money. The clue is in the name – these are discretionary payments, not like benefits, which are an entitlement for people in return for national insurance contributions. This is money provided by the state for those in an unexpected financial crisis. So there is an in-built assumption that emergency grants are only given for essential purchases – a replacement fridge, for example.

Under the old system, applications for community care grants (one of the payments in the social fund) required people to list the items they needed, and managers would award a grant based on an estimate of the cost. It is important to remember that non-essential items were excluded – beds were in, pot plants were out. And it worked pretty well – a National Audit Office report in 2010 found that, while many applications included non-essential items (8% applied for money to buy a TV), they only found two individual cases in a sample of 1,000 where a grant had been awarded for non-essential items – and there were extenuating circumstances in both cases.

The NAO did conclude, however, that fraud wasn't monitored, and managers rarely checked to see if the money they awarded was actually being spent on the items in the application form. There are simple techniques to remedy this – the requirement of receipts, for example, or even a "prepaid card", like that mentioned in the news story.

But there are prepaid cards and prepaid cards. As I've argued previously, giving cash on "unrestricted" types of cards can be really useful in an emergency, as there's no delay in bank clearing. So when someone has a boiler breakdown on a Saturday night they can be given a card with money preloaded to get it sorted as soon as possible. These were handed out in stacks to displaced New Orleans residents after Hurricane Katrina, for example.

The problem with the new proposed systems is that they prescribe, in advance, precisely what those grants can be used for. So no longer do you list what you need and are assessed on an individual and discretionary basis – you are told what you can get, regardless of whether you need it. And it seems the majority of those reviewed by the Guardian have identified food, nappies and in some areas a bit of furniture. In some instances this might be administered via "restricted" cards – which presumably are blocked from use on anything other than the prescribed list.

The folly of such a system is obvious – what use is a food parcel for someone who needs an emergency grant because their boiler has broken down? The gap between what is needed and what is provided is where the danger lies. Black markets to resell the goods (or the cards) people don't need to purchase goods they do, and doorstep lenders to make up the inevitable shortfall, will proliferate. Moreover, using restricted cards can be administratively burdensome – the technology is such that you can block a shop, but not a product. You might be able to block an off-licence, but supermarkets sell alcohol. These practical difficulties, alongside ethical concerns, are why we at Demos advised against restricting how benefits are spent using prepaid cards, in our report The Power of Prepaid earlier this year.

And it perhaps seems obvious, but those who can't afford groceries are already being referred to the rapidly growing networks of food banks across the UK (opening at a rate of three a month). The local social fund replacement schemes seem only to be duplicating this process, rather than considering the range of non-food (often housing or child-related) emergencies faced by many. Perhaps the message is – use your last pennies on getting that hole in the ceiling fixed, and then apply for a grant to buy dinner?

It's a ludicrous situation, but we shouldn't blame local authorities. The localisation of the social fund – like council tax benefit – comes with a huge reduction in the amount available. This is not devolution of power, but a passing of responsibility to meet (growing) demand with drastically less money.

Local authorities are struggling on with a variety of solutions, and need to rely on local infrastructure for delivery – while food banks are now all over the place, furniture swap shops are harder to come by. Councils are to some extent bound by what's available in their local voluntary sectors in order to make the money go as far as possible. It is also entirely understandable that they have to use rather arbitrary eligibility rules to ensure the dwindling cash is reserved for the most urgent, life-threatening needs.

It's a sad state of affairs when the only emergency local authorities feel able to tackle is people having no food.